VW Investigated for Falsely Certifying $50 Million in U.S. Tax Breaks

Two years ago, it seemed like an unbeatable company with an environmental track record that could only grow stronger. But as Volkswagen Group of America CEO Michael Horn took the oath before Congress yesterday, it became clear that those days were probably over. Volkswagen's global enterprise is now fighting to stay in business.

Wednesday, two high-ranking senators announced that they would initiate an investigation to determine if Volkswagen intentionally deceived the Internal Revenue Service out of more than $50 million in tax credits.

Senate Finance Committee Chair Orrin Hatch (R-Utah) and ranking member Ron Wyden (D-Ore.) say they are responding to news that consumers who purchased certain VW models received as much as $1,300 in tax breaks between 2009 and 2010, racking up a tally of more than $50 million in breaks for 2009 and 2010 models (tax breaks continued following those years, but were less after 2010). According to Hatch and Wyden, 60,000 such vehicles were sold in the U.S. during that period.

Thursday morning, Congress began the lengthy process of trying to determine how defeat devices had become routine mechanisms in some of VW's higher-priced diesel models, who had made the decision to include them, and why.

Two of the more interesting pieces of information shared by Horn was that it was "a couple of engineers" who were independently responsible for the world-wide deception, and that the device was installed allegedly in response to emission standards being tightened. It isn't clear how two engineers would have been able to implement such changes, particularly in light of the fact that VW, by its own admission, maintains fairly stringent oversight of its technology and its production processes. The automaker's Chattanooga, Tennessee, plant has gone to lengths to demonstrate that such oversight is a company-wide concern.

But it's also not clear why two engineers would feel that they should act arbitrarily to fool emissions tests that were put in place to address global warming concerns, particularly given the company's established environmental focus. At what point do such national environmental mandates become acted upon by design engineers?

There likely will be many more questions to be answered in coming weeks as VW attempts to address the investigations that have been launched across the globe. Yesterday, German prosecutors raided the company's headquarters in the hopes of learning the origin and use of the defeat device. The raid is further bad news for VW shares, which continue to drop.

Recovering from those losses will likely be challenging for VW. It's facing mounting costs and still has not come up with a clear answer as to how it will address the emissions problems of the some 11 million affected vehicles worldwide. According to Horn, it's a task that will likely take a few years to fix.

That isn't sitting well with some members of Congress, who suggested that VW should consider buying back all of the affected vehicles -- at their original sales prices. It's unlikely that the automaker will do that, but it is offering $2,000 to "returning Volkswagen owners" who are willing to stay loyal to the brand and purchase a new vehicle. It will be interesting to see how that turns out.

Image credit: Bruno Kussler Marques